Panera Bread CEO Ron Shaich on Restaurant Industry Competitiveness

What do shoppers want? Experts discuss the forces reordering the retail industry.

What’s changed the most in the restaurant industry over the past five years?I did a study two years ago on the profitability of restaurant companies over the prior five years. Eighty percent of the $1 billion-plus public restaurant companies made less money two years ago than they made seven years ago. You can go back and look at the top 50 restaurant companies 30 years ago; half of them no longer exist. They were sold, bought out, or hit the wall. So you have this very difficult operating environment in which competitive advantage is everything. I’ve often thought size and scale are actually bad. For a while you’re large, you take advantage of it, you build your margins. And then you wake up one day, and you go, oh my God, we don’t have a competitive position. We’ve just got an efficient operation in something that worked five years ago. And that’s the biggest threat, if I may say, that exists for this industry. There’s no technological atomic bomb that can somehow disrupt it like it did books.

How do you benefit from technology?Technology in itself means nothing if it doesn’t enable a differentiated customer experience. So those people that are able to figure out how to use technology to enable a better guest experience will win. Those people that don’t, won’t. But I guarantee you nobody’s going to a restaurant because it has a mobile app.

How big of a change is it that you can now gather so much information about your customers?It’s powerful. About 50 percent of our transactions occur on our Panera (PNRA) card. So we have individual information on individual purchase activities. That means that when we’re going to do something, we can actually look at its impact on behavior and build our marketing and our campaigns around individual consumers or small groups of consumers as opposed to the mass market. Everybody is going to get something a little different depending on what their behavior is.

It seems Panera actually hit its stride right around the time the financial crisis struck. From that point, revenues and margins have gone way up. What did you do right?It goes back further than the recession. We have been by nature both contrarian and long-term. And so when the go-go days were occurring before the financial meltdown, we actually harbored our resources. We built up our balance sheet. We actually, at some point, slowed down our growth. And then when the recession hit, we made a decision at that point that was the time to invest in new growth. We increased the growth rate significantly, about 150 percent.

Where else do you like to eat?Sometimes I’m in the mood for Mexican, and I’ll go to Chipotle (CMG). They do a fine job. Other times I’m in the mood for Italian; I’ll go to a local place that I love that uses wonderful ingredients. And then I’m an investor in Island Creek, an upscale oyster bar that I find extraordinary. I love to go there about 10 and hang out and watch the folks and eat.